As a self-employed person, you are at a certain disadvantage in a range of areas – no sick pay, no paid holiday leave and smaller pensions. Another area in which you will find yourself at a slight disadvantage is when applying for a mortgage. Luckily, there are lots of workarounds when it comes to tackling this particular challenge. The main issue the self-employed face is being seen as a risky investment by mortgage lenders.
Read on for our expert advice on how to overcome this issue without all the stress and hassle.
Why is it so difficult for the self-employed to gain access to the mortgage they want?
Why do the self-employed having a hard time getting a mortgage? The predominant reason is because most lenders perceive them to be a risky investment. Due to the often precarious nature of self-employment, the self-employed can occasionally find themselves without a regular, stable income. The vast majority of lenders are often hesitant to offer these people mortgages because there is little guarantee that payments will be met on time, every time.
Lenders will want to see two to three years of proof of income, in order to consider offering you a mortgage. As well as looking over and weighing up your business and financial past, lenders will also want to know about where you will likely be in the future. Lenders are looking to see if you have a solid proof of reliable income and that you will be able to sustain this income in the years to come, in order to consistently meet mortgage payments.
As a self-employed person, you will be undertaking self-assessment each year, making a note of your outgoings and sales and paying a final bill. As such, you will be able to get a tax calculation, which shows the total income received and total tax due. This form is sufficient evidence of your past earnings, and is what you should provide potential lenders. They will use this in weighing up whether or not to accept your mortgage application.
How can you improve your chances?
Before providing your financial history to a lender, how can you improve your chances of securing a mortgage? Firstly, lenders will assess your risk based on how well you manage your money. Do you pay your bills on time? Are you a saver, rather than a lavish spender? Lenders will be looking to see if you are responsible with your outgoings and bill repayments. In addition to watching your spending carefully, you will also want to ensure that you save for a larger deposit: a deposit of at least 20% will really help tip the odds in your favour.
Improve Your Credit Rating
In addition, you’ll also want to make sure that you have a strong credit rating. This will help boost your chances of being granted a mortgage. The Mirror rovides some more advice on how to do this:
“Pay off any debts as soon as they are due, including credit cards and phone bills, to ensure you have a good credit rating. Ensuring you are on the electoral register at your current address will also help your credit rating.”
Easier than it seems
At first, it may seem that applying for a mortgage is a real headache for self-employed people, but by following these simple tips you’ll stack the odds in your favour. If you’d like to discuss your options further or any potential issues, then please get in touch with a member of our team today.
Please be aware that by clicking on to the above links you are leaving the Perception Finance Limited website. Please note that Perception Finance Limited are not responsible for the accuracy of the information contained within the linked site(s) accessible from this page
Written by: Editorial Team